In February, typically the biggest month for dividend increases, 77 companies in the Standard & Poor's 500 index raised their payouts, the most in data going back to 2004. Payments now total 36% of index profits, up from 29% two years ago, but well below the historic average of over 50%. "We could see 40% soon so long as profits remain strong," says Howard Silverblatt, an analyst at S&P.

Company cash balances are at record levels—more than $1 trillion for the companies in the S&P 500—and most are sitting in low-yield investments. Companies can buy back stock with their cash, and many do, but on the whole, the pace of recent repurchases suggests companies are more interested in offsetting the effect of employee stock option awards than reducing their share counts, says Silverblatt.

Acquisitions are another option for cash, but they don't typically work out well for shareholders. Following heated bidding contests, the winners tend to underperform the losers by 50% over the following three years, according to a study last year by professors at the University of California at Berkeley.

Dividends help reduce the temptation of managers to do deals, which helps explain why dividend-paying stocks do well over long time periods. Payments don't magically add to returns; on the day they're made, share prices are reduced to reflect the outgoing cash. Yet from 1972 through 2011, dividend payers in the S&P 500 returned an average of 8.6% per year, versus 1.4% for nonpayers, according to Dreyfus, a mutual-fund manager owned by BNY Mellon. Companies that raised their dividends did even better, returning 9.4%.

The dividend yield for the S&P 500 stands at 2.1% based on the past four quarters of payments. But if profits grow just 5% this year (Wall Street's 15% forecast looks overly rosy) and dividends nudge up to 38% of profits, shareholders will collect a 2.6% yield. Either number looks attractive next to the 10-year Treasury yield of 1.9%, particularly because dividends, unlike bond coupons, can grow over time.

Juicy yields abound. More than 100 companies in the S&P 500 yield at least 3%. Stock buyers shouldn't simply grab for the highest yields, however, because those can signal that investors anticipate a dividend cut, which can send a stock price tumbling. Better to look for healthy yields where the payments consume only a modest portion of profits. Between August 1996 and August 2012, "high-yield, low-payout" stocks returned 13.4% a year in the U.S., versus 8.1% for the S&P 500, according to research by Credit Suisse. The pattern was the same across stock markets around the world.

A RECENT SCREEN FOR companies with healthy dividend yields, modest payout percentages, and a recent history of payment growth turned up four names. Chevron shares yield 3.1%, but the return is more like 5.5% if you include share repurchases, according to Gordon Gray, an analyst for investment bank Canaccord Genuity, who initiated coverage of Chevron with a Buy rating last month. The company sits on more than $10 billion in spare cash and has the highest cash flow per barrel of oil of its peers. Operating cash flow should rise from $39 billion last year to $48 billion over the next four years as new projects come online.

BB&T, a mid-Atlantic bank, raised its quarterly dividend by 15% in January. Companies may generally pay out as much of profits as they please, but banks must convince the Federal Reserve that they're holding onto enough cash. That means the payout bump gives some insight into BB&T's earnings power, according to Marty Mosby, who covers the stock for Guggenheim Securities. BB&T avoided the stumbles that brought many banks to their knees during the Great Recession, notes Mosby, and is now poised to gain business from weaker rivals.

Ford restored its dividend just over a year ago and doubled it in January. Shares now yield 3.2%. The troubled financial history of U.S. car makers may give some investors pause, but Ford has sharply reduced fixed costs by unloading underperforming brands and re-negotiating union contracts. Cars like the Fusion, Fiesta, and Escape are gaining market share, and overall deliveries for U.S. car makers shot up 14% in January. A rising credit rating and shrinking automotive debt have helped Ford slash more than $1 billion from annual interest payments since 2008.

Time Warner Cable shares have tumbled 11% this year, versus a 6% rise for the S&P 500. The reason: The company said in late January that earnings per share will grow 10% to 15% this year; Wall Street was looking for 20%. Competition from satellite and phone companies has cut into Time Warner's basic cable business. Management is responding with aggressive pricing, next-generation DVR boxes, staff retraining and new programming. The company's ability to spend free cash on shareholders is "severely underappreciated," according to Macquarie Research analyst Amy Yong. Shares yield 3%, and between this year and next she expects the company to spend $4.6 billion to repurchase its stock—18% of its current market value.